Management Fights Dissident Group At Valley Maker of Oxygen Systems
By MICHAEL HART
San Fernando Valley Business Journal
CHAD Therapeutics Inc. has a market cap of $28 million, a stock price of less than three bucks and earnings for the last quarter of $178,000 not exactly takeover material.
Nevertheless, a battle for control of two seats on its board has seen accusations of fraud and malfeasance between management and a group calling itself The Committee to Restore CHAD Shareholder Value.
The reason for all the interest in the Chatsworth-based maker of oxygen systems?
“That would be pure speculation on my part,” said CHAD Chief Executive Earl Yager, “which I’d rather not comment on publicly.”
The dissident group, which holds less than 8 percent of the company’s shares and is headed by Missouri real estate developer David Johnson, did not return calls. However, it reported in Securities and Exchange Commission filings that its members were “dissatisfied with CHAD’s poor historical financial performance” and that its stock price has plunged from an all-time high of $20.62 in 1996.
CHAD has acknowledged problems in the past but, as Yager said, “We’re executing a turnaround plan that (CEO) Tom Jones implemented when he came on board in 1998.”
In fact, the company saw a 54-percent revenue increase for the year ended March 31, to $18.7 million. Net income for the first quarter ended June 30 was $178,000, compared with $13,000 for the like period a year ago. Revenue for the quarter was $5.0 million, up from $4.8 million.
Although official results of the board election held Sept. 11 have not been announced, Yager said it was clear that the management slate had an overwhelming majority of votes.
Like others in the medical device sector, CHAD was hurt by cuts in Medicare reimbursements that were part of the Balanced Budget Act of 1997. Earnings that year fell sharply.
Then, in early 2001, CHAD introduced a line of oxygen conservers that give patients the means to refill oxygen tanks on their own, resulting in reduced costs for suppliers and increased sales for CHAD.
“So we’ve recaptured a lot of our old market share,” Yager said.
Standard & Poor’s analyst Craig P. Pratesi projects that sales could increase 15 percent to 20 percent in the next year.
Company officials point out that CHAD is debt-free and that the stock price has risen from a low of 50 cents a share in December 2000.
The dissidents, however, believe that, given that 43-percent increase in sales over the past year, the stock price should have increased by even more. The group also claims in filings that research and development needs to be restructured to get new products to market quicker.